Non-farm employment data improves, the Federal Reserve may delay its pause

The latest signals from the labor market are changing the Federal Reserve’s policy expectations. According to market analysis, experts point out that the improvement in December non-farm payroll data has become the biggest black swan event for the new year — but this time in a positive direction.

Annex Wealth Management Chief Economist Brian Jacobsen mentioned that although unemployment claims tend to fluctuate and be affected by noise during the holiday season, this indicator remains the most reliable tool for assessing the true health of the labor market. The key now is that the non-farm payroll data is showing positive signals at the end of the year, which has altered market expectations regarding the Federal Reserve’s policy.

This shift is significant. Previously, the market expected the Fed to possibly adjust interest rates at some point, but the improvement in the labor market suggests that inflationary pressures faced by the Fed may remain relatively stable. Coupled with the marginal improvement in non-farm payroll data, the window for the Fed to keep interest rates at current levels could be further extended. In other words, the timetable for rate cuts or hikes could be pushed back.

The market is re-pricing these expectations, and labor market data will become the main window for observing the Fed’s stance moving forward.